competitors in the wholesale market today (i.e., the business of TPI and the Alpers would not have been destroyed.)" Pls.' Mem. in Opp'n to Def. DTS's Mot. to Dismiss, p. 16. Notably, however, the number of firms in the national wholesale merchandising market did not actually decrease at the time of the stock purchase, for DTS did not compete in that market prior to its acquisition of TPI-IL. Indeed, plaintiffs have conceded that "DTS was [not] forbidden from entering the national consumer product wholesale market as a competitor [at the time of the stock purchase]" (emphasis added). Id. at 16 n.64. The transaction did not result in a net loss of firms to the market, then, because DTS merely replaced the Alpers as the owner TPI-IL's wholesale merchandising business. Presumably, plaintiffs wish to argue that DTS and Avers merely prevented the number of competitors from increasing. Indeed, the Alpers suggest that this occurred in two ways.
First, plaintiffs allege that DTS and Avers destroyed TPI-DE by misappropriating confidential information that was essential to the success of that business. In order to establish that this misappropriation prevented the number of wholesale merchandising firms from increasing, however, plaintiffs would need to show that both DTS and TPI-DE would be in the market had the improper acts not occurred. This cannot be done. By making a claim of misappropriation, plaintiffs assert that they have an exclusive right to the disputed business information, a right that is not shared by DTS. Regardless of whether plaintiffs win or lose their state law misappropriation claim, then, the market will be left with only one wholesale merchandiser. The misappropriation could not have prevented the number of market competitors from increasing.
Second, plaintiffs allege that they were induced to enter restrictive covenants that barred them from reentering the wholesale merchandising business. 2d Am. Compl., P 54. It appears, however, that plaintiffs can cite no specific contract provisions to support this allegation. In fact, the Non-Competition Agreement appended to the Stock Purchase Agreement specifically allows the Alpers to rehire their former wholesale merchandising employees and to compete with DTS in that market. While Section 1.3.2 of the Non-Competition Agreement bars the Alpers from engaging in certain retail operations, it specifically authorizes them to pursue "the wholesale sale or distribution of goods." And while Section 2.2.3 of that agreement precludes the Alpers from rehiring certain TPI-IL employees, it specifically allows them to rehire wholesale employees. Id. at § 2.2.3. Plaintiffs have therefore failed to demonstrate that they are subject to any restrictive covenants that prevent them from competing with DTS in the wholesale merchandising market.
Thus, plaintiffs have failed to allege that they were unlawfully restrained from competing against DTS in the national wholesale merchandising market either by virtue of restrictive covenants or by the misappropriation of confidential business information. Inasmuch as plaintiffs' antitrust claim rests on the premise that the number of wholesale merchandising firms in the United States would be higher but for their impermissible exclusion from the market, this claim must fail. Count I of the second amended complaint will therefore be dismissed.
B. Securities Fraud
In Count II, the Alpers allege that DTS fraudulently induced them to sign the Stock Purchase Agreement by making intentional misrepresentations about the nature of the transaction, thereby violating Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(j)(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1996). Plaintiffs allege that, among other things, DTS misrepresented the transaction by stating that it would not (1) acquire or interfere with any aspect of TPI-IL's wholesale merchandising business, (2) hire or solicit the employment of any TPI-IL wholesale merchandising employee, (3) use confidential business information relating to TPI-IL's wholesale merchandising operations, or (5) initiate or maintain contact with any TPI-IL employee concerning TPI-IL's business operations. Plaintiffs further allege that DTS failed to notify them that it would not honor these "conditions precedent" to the stock sale.
In order to state a claim under Rule 10b-5, a plaintiff must allege that the defendant "(1) made an untrue statement of a material fact that rendered the statement made misleading; (2) in connection with a securities transaction; (3) with the intent to mislead; and (4) which caused [the plaintiff's] loss." Branch-Hess Vending Servs. Employees' Pension Trust v. Guebert, 751 F. Supp. 1333, 1340 (C.D. Ill. 1990), citing Schlifke v. Seafirst Corp., 866 F.2d 935, 943 (7th Cir. 1989). Where a plaintiff unjustifiably relies on a material misrepresentation, however, the misrepresentation can no longer be said to have caused the plaintiff's loss. Branch-Hess, 751 F. Supp. at 1440-41. The Alpers cannot claim that they were fraudulently induced to sign the Stock Purchase Agreement, then, if they had reason to know that DTS's statements did not accurately reflect the nature of that agreement.
It is well established that the unambiguous terms of a written agreement supersede any previous discussions concerning the meaning or effect of that agreement. Thus, the Seventh Circuit has observed that "no suit for securities fraud can be maintained on the basis of oral representations plainly inconsistent with written ones." Wolin v. Smith Barney, Inc., 83 F.3d 847, 851 (7th Cir. 1996); see also Branch-Hess, 751 F.2d at 1341; Schlifke, 866 F.2d at 944; In the Matter of VMS Limited Partnership Securities Litigation, 803 F. Supp. 179, 195 (N.D. Ill. 1992). Indeed, plaintiffs concede that where "documents clearly and flatly repudiate prior fraudulent misrepresentations, reliance upon such misrepresentations may be declared unreasonable as a matter of law." Pls.' Mem. in Opp. to Def. DTS's Mot. to Dismiss, p. 24 n.88 (emphasis omitted).
The parties do not dispute that the Alpers sold one hundred percent of the stock of TPI-IL to DTS. As a matter of law, this transaction conveyed ownership of the entire corporate entity from the Alpers to DTS. See, e.g., Brodsky v. Frank, 342 Ill. 110, 173 N.E. 775, 777 (Ill. 1930) ("sale of all of the stock of a corporation is, in legal effect, a sale of all of its assets"). The Alpers retained only those portions of TPI-IL that were clearly identified in the carve-out provisions of the Stock Purchase Agreement. The court must therefore decide whether the Stock Purchase Agreement provided that the Alpers would retain those portions of TPI-IL that they now claim were misappropriated by DTS. In particular, it is necessary to determine whether the agreement bars DTS from using TPI-IL's wholesale business information and from hiring Avers.
Plaintiffs argue that Article 5.3.1 of the Stock Purchase Agreement, whereunder they reserved the right to use all TPI-IL "trade names, trademarks and service marks, including the goodwill associated respectively therewith," should be construed as an "express retention of their wholesale merchandising business customers and employees--including but not limited to defendant Avers." Pls.' Mem. in Opp. to Def. DTS's Mot. to Dismiss, p. 25 (emphasis omitted). To support this argument, plaintiffs cite In re Bay Plastics, Inc. v. BT Commercial Corp., 187 Bankr. 315, 330 n.24 (Bankr. C.D. Cal. 1995), which suggests that goodwill encompasses whatever "advantageous relationships" may exist between a corporation and its customers and employees. The concept of goodwill does not, however, give a corporation the right to maintain exclusive relationships with its customers and employees. Consequently, the Alpers merely retained the right to benefit from whatever customers and employees would choose voluntarily to do business with their enterprise as a result of the goodwill associated with the TPI trade name.
Moreover, plaintiffs suggest that DTS was barred from using TPI-IL's wholesale merchandising information and from hiring Avers by virtue of Article 7.8 of the Stock Purchase Agreement, which provided that the Alpers would retain their wholesale merchandising inventory after closing the transaction. On its face, however, this carve-out provision relates only to physical inventory rather than to intangible business information. While the existence of such a contract term suggests that the Alpers intended to reenter the wholesale merchandising business, a fact not in dispute, it does not clearly establish that DTS was barred from using TPI-IL's wholesale merchandising business information. Indeed, the Stock Purchase Agreement contained no analogous carve-out provision for intangible business information.
Finally, plaintiffs argue that sections 2.2.3 and 1.3.2 of the Non-Competition Agreement appended to the Stock Purchase Agreement clearly establish that DTS had no right to use TPI-IL's proprietary wholesale merchandising information or to hire Avers. Once again, plaintiffs' argument must fail. While these sections give the Alpers the right to reenter the wholesale merchandising market and to rehire its wholesale merchandising employees, they cannot be said to prevent DTS from using information concerning TPI-IL's wholesale retailing operations or from hiring Avers.
In short, there is nothing on the face of the Stock Purchase Agreement which provides that DTS was forbidden from hiring Avers or from using TPI-IL's wholesale business information. As a matter of law, then, the Alpers were not justified in relying on DTS's representations concerning the meaning of the Stock Purchase Agreement because those representations were contradicted by the plain terms of the written agreement. As sophisticated business persons assisted by counsel, the Alpers could not reasonably have assumed that the Stock Purchase Agreement would result in anything other than the sale of the entire corporation, subject only to the explicit carve-out provisions included in the agreement. Inasmuch as plaintiffs have therefore failed to demonstrate that any misrepresentations by DTS caused their injury, they have failed to state a viable securities fraud claim under Section 10(b) and Rule 10b-5. Thus, Count II of the second amended complaint will be dismissed.
C. Pendent State Claims
Plaintiffs allege a variety of supplemental state law claims in addition to their federal antitrust and securities fraud claims. Congress has authorized the federal courts to exercise supplemental jurisdiction over state law claims so long as they form part of the same "case or controversy" as the claims over which they have original jurisdiction. 28 U.S.C. § 1367. The statute further provides, however, that a court may decline to exercise supplemental jurisdiction if it has "dismissed all claims over which it has original jurisdiction." 28 U.S.C. 1367(c)(3). See also Korzen v. Local Union 705, Int'l Bhd. of Teamsters, 75 F.3d 285, 289 (7th Cir. 1996) (federal courts should relinquish supplemental jurisdiction over state law claims when they dismiss the claims over which they have original jurisdiction). This is certainly the proper course here. Having dismissed both the federal antitrust and securities fraud claims, then, the court will now dismiss the state law claims for lack of subject matter jurisdiction.
ORDERED: Counts I and II of plaintiffs' second amended complaint are dismissed with prejudice pursuant to Fed. R. Civ. P. 12(b)(6); the court declines to exercise supplemental jurisdiction over Counts III through XIII pursuant to 28 U.S.C. § 1367 and therefore dismisses these counts without prejudice.
George W. Lindberg
United States District Judge
Date: NOV 26 1996
JUDGMENT IN A CIVIL CASE
IT IS ORDERED AND ADJUDGED counts I and II of plaintiff, Terrifice Promotions, Inc. second amended complaint is dismissed with prejudice pursuant to FRCP 12(b)(6); the court declines to exercise supplemental jurisdiction over counts III through XIII pursuant to 28 USC Section 1367 and therefore dismisses these counts without prejudice.
November 26, 1996
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